Merkel, in anxious Lisbon, hails austerity drive

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Police officers clash with protesters during a demonstration against German Chancellor Angela Merkel in central Lisbon November 12, 2012. Merkel faced scattered protests on Monday in Lisbon, where she delivered German endorsement of a government austerity drive designed to honour a bailout loan but which critics fear may only deepen the slump.

Analysis & Opinion

LISBON (Reuters) - Angela Merkel faced scattered protests on Monday in Lisbon, where she delivered German endorsement of a government austerity drive designed to honor a bailout loan but which critics fear may only deepen the slump.

"The situation is difficult but what Portugal is doing, it is for the future," the chancellor told a joint news conference with Prime Minister Pedro Passos Coelho, who has seen popular patience and political consensus begin to fray in recent weeks.

"This visit is an opportunity to know the country better and to bring hope."

Speaking for both himself and his fellow conservative Merkel, the Portuguese premier dismissed criticism such as that in a leading business newspaper which accused the chancellor of pursuing "Frankenstein experiments" with Portugal's economy; Passos Coelho insisted: "We think this is the only way forward."

Though at least one of the few hundred demonstrators in Lisbon carried a placard showing Merkel with a Hitler moustache and the slogan "Not again!", there was little violence and much less anti-German fury than when she visited Athens a month ago.

About 300 hundred protesters burned an effigy of Merkel outside a German-Portuguese business conference, holding up a billboard with the words "Die Merkel" on it and the flags of Spain, Portugal, Greece and Italy in the background.

Passos Coelho is anxious to mark out Portugal's differences from troubled debtor Greece. He is clearly pleased Merkel and German business leaders have hailed Portugal as model for the kind of deficit cuts and economic reforms they see as necessary to restore investment, revive growth and repay creditors.

While encouraging the Lisbon government to stick with its program in the face of opposition, Merkel may also hope her visit can reassure Germans, who will vote next year, that the billions they grudgingly lent are being well used.

"The program is being fulfilled by Portugal in an excellent way," she said at the coastal fortress where she and Passos Coelho had lunch. "I sense a great sense of determination here in Portugal to overcome this difficult phase."

PROTESTS

Yet Portuguese patience with tax hikes and spending cuts, imposed under last year's 78-billion-euro rescue program, has begun to run out as the worst slump since the 1970s continues.

A general strike against austerity is set for Wednesday.

The CGTP union, which is organizing the strike, led a separate protest against Merkel and Portugal's lenders - the European Union and IMF - which started a quarterly bailout review of the economy on Monday.

"We have a government that has no mind of its own, just doing what Merkel tells them, what the European Council decides," said CGTP chief Armenio Carlos.

Making her first such official visit to Portugal since she took office in 2005, Merkel was given heavy protection, including sharpshooters posted on the battlements of the fort, where the last foreign leader to be welcomed was Libya's late Muammar Gaddafi.

The people of Lisbon had woken on Monday to find a dozen or so public statues in the city draped with black plastic sashes in a sign of mourning; protesters also pasted up posters showing Passos Coelho, Merkel and European Central Bank chief Mario Draghi in a casino. They read: "We pay, they play, bank wins."

In an example of how a consensus on austerity has broken down within the Portuguese establishment, a major business newspaper, Diario Economico, ran an piece on Monday condemning Merkel, a trained physicist, for her "science experiments" with Portugal. It argued that recession should be a cue for greater public spending.

"Merkel has made an economic Frankenstein out of Portugal," the newspaper said, warning of a downward spiral in activity.

The Portuguese government made clear it wants European allies to go beyond kind words and act to help - notably by letting Portugal slash some taxes on corporate investment that might otherwise fall foul of EU fair trade rules.

"We've done our homework with many sacrifices and a lot of determination," Economy Minister Alvaro Santos told a German-Portuguese business conference in Lisbon. "Now it's time for Europe to reciprocate.